AT&T's New Upgrade Plan: Buy Early and Often

AT&T on Tuesday introduced AT&T Next, a plan that lets users upgrade their handsets and tablets every 12 months.

Beginning July 26, the new service will let customers purchase a smartphone or tablet with no down payment and agree to pay monthly installments for the device. After 12 payments, they can trade it in and upgrade to a brand-new device -- again with no down payment -- or they can keep using their device and have no more payments after 20 months.

Subscribers will pay US$15 to $50 each month in interest-free monthly installments for the phone on top of their normal service bill. A Galaxy S4, for example, will add $32 per month to the bill for up to 20 months. After 12 months a consumer will have paid $384 for the handset; after 20 months, that sum will reach $640. Consumers holding onto their phone or tablet after the 20-month period will stop paying the $32 each month and be responsible just for service.

AT&T Next is available for new AT&T customers or existing customers who are upgrade-eligible.

Numerous Options

The Next plan is a departure from the traditional subsidized pricing plan through which subscribers commit to a two-year contract to get a discounted device. In the case of subsidized pricing, customers typically pay a reduced price for the handset or tablet up front, then pay for service.

AT&T lists the Galaxy S4 on its website for a regular price of $594.99, for instance, but consumers can get it for $199.99 by committing to a two-year contract.

AT&T will still support its subsidized pricing program, which makes subscribers eligible for upgrade after 24 months. It also has a no-commitment pricing option that allows consumers to bring their own GSM-capable device to AT&T and pick up service without a contract commitment.

"AT&T Next is another choice for our customers," said AT&T in a statement provided to the E-Commerce Times by spokesperson Steven Schwadron. "Customers can still choose to purchase a discounted device with a two-year service commitment or bring their own GSM-compatible device. All of our current upgrade options are still available."

'A Little Disconnect'

The movie is a good one in that "it gives the consumer many more options -- portable options that don't tie them down," David Dines, principal analyst at
ACG Research, told the E-Commerce Times.

"What they're trying to do is make it so if you want to buy a tablet or a very high-end phone that would not be subsidized originally, you can do that at a much more reasonable entry point," Dines added.

While high-end phones often see faster turnover from consumers who like to move on to the next big thing, they also typically hold up to the two-year lifespan.

"These phones last a long time," Rich Karpinski, senior analyst at Yankee Group, told the E-Commerce Times. "So there's a little disconnect in the fact that the high-end phones will have a long life. I think most people would be happy to keep their iPhone or Samsung Galaxy for a long time."

Early Adopters

The Next plan probably isn't for every AT&T subscriber. It is likely that the phone will appeal to early adopters who are willing to pay a premium to get a new phone annually, instead of waiting for the two-year contract to come up.

"It's that early adopter group," Karpinski said. "That isn't somebody that [AT&T] wants to lose. It's these carriers trying to appeal to different niches and go about it in a very creative fashion."

Time will tell how many consumers will take AT&T up on its Next offer.

"I think it's going to appeal to a fairly narrow market," said Dines. "People who want something new, but they don't want to shell out the money up front, or they can't shell out the money up front."

Following Carrier Trends

AT&T's new plan is similar in some ways to T-Mobile's Jump plan, which was also introduced recently. Verizon, meanwhile, is expected next month to introduce its VZ Edge plan, which will let subscribers upgrade when their commitment hits the halfway point.

While carriers like to lock subscribers into long-term contracts, they also need to encourage consumers to upgrade outdated handsets. New plans such as the Next plan help move consumers to newer infrastructure.

"They are now in the process of updating all of their infrastructure to 4G and LTE," said Dines. "Having people upgrade faster can be a benefit as well -- to have people move to faster infrastructure and get more efficiency out of it. So that's actually a very good way to encourage people to upgrade more frequently.